HUL, Container Corporation among 10 stocks where brokerages initiated coverage in March

Ahead of Lok Sabha elections, the investors are shifting focus to political developments. The market is hoping that Modi will come back to power and the recent rally has been on the back of foreign investors pumping in money.

In March itself, the Nifty50 is the best performer globally and overall Indian equities attracted more Rs 27,000 crore of FII inflow since February, which is highest in last many months.

“In March’19 till date, the institutional activity has presented very contrasting picture wherein FIIs have displayed relentless aggressive buying spree, whereas DIIs have been constant sellers. If political stability continues and economy revives, the current rally can be expected to sustain,” Jagannadham Thunuguntla, Senior VP and Head of Research (Wealth) at Centrum Broking told Moneycontrol.

Jagannadham also believes buying will sustain in quality mid and smallcaps. However, investors should stay away from the companies with high debt and high promoter share pledge, he advised.

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Many stocks are so attractively valued (after falling 20-50-60 percent from all-time or 52-week highs) that brokerages started looking at them closely and revised their ratings, price targets and some even initiated coverage on select stocks.

Here are top 10 stocks where brokerages initiated coverage in March with a buy call:

Brokerage: ICICI Securities

M&M Financial Services: Buy | Target: 500 | Return: 14%

Buoyancy in rural India and MMFS’ focus on rural financing are expected to support valuations.

MMFS has ingredients to sustainably command premium valuation – 1) rural reach providing huge opportunity with pricing power, 2) robust AUM growth (AUM, earnings CAGR of 20 percent, 25 percent, respectively, in FY18-21E), 3) higher rural income led by farm loan waivers and cash flow receipt during election, 4) strong management and 5) adequate risk management with limited losses.

We value core auto business at 2.6x FY21E ABV (1.8x FY21E BV) and add Rs 50 as value for subsidiaries like housing that is picking up pace.

Assuming 20 percent holding company discount in lieu of subsidiaries, we initiate coverage with buy recommendation and a target price of Rs 500 per share.

Brokerage: Yes Securities

Capacite Infraprojects: Buy | Target: Rs 330 | Return: 39%

Revenue visibility of more than 25 percent CAGR over FY18-21 is backed by strong order book; preferred contractor for Super/high-rise buildings. Niche in construction of complex structures aids better margins which are likely to sustain at more than 14 percent at operating level.

Growth will sustain without asset ownership and largely through internal accruals. Return on capital employed is higher than several EPC peers on account of asset light model, segment focus and region focus and better working capital control.

Leverage is under control unlike many EPC peers; generates positive operating cashflow. Return on equity depressed due to fund infusion from IPO; holds Rs 270 croren cash to be utilized in 2 years. Return on equity will move to around 17 percent in FY21.

The stock is trading at an attractive valuation of around 9x FY21E P/E. We value business at 13x FY21E P/E, arriving at target price of Rs 330. It is the top pick in EPC space.

Brokerage: Reliance Securities

Hindustan Unilever: Buy | Target: Rs 2,000 | Return: 15%

We are initiating coverage on Hindustan Unilever (HUL) with a buy recommendation and a target price of Rs 2,000. Looking ahead, we expect HUL to witness the fastest earnings growth among the major FMCG companies, notwithstanding the size and scale of operations.

HUL is expected to register earnings CAGR of 23 percent over FY19-21 driven by both organic and inorganic initiatives. Acquisition of GSK Consumer’s India business provides HUL a strong foothold in the foods segment in terms of diversifying its portfolio and reducing dependence on homecare and personal care segments.

At CMP, the stock trades at a premium valuation multiple of 50x FY20E earnings, which we believe to sustain owing to strong growth visibility. We value the stock at 45x FY21E earnings to arrive at our target price.

Brokerage: Edelweiss Securities

GMDC: Buy | Target: Rs 105 | Return: 15%

We initiated coverage with a buy call on the stock and price target of Rs 105 apiece.

The conviction is underpinned by two Vs i.e. volume & valuation. We sees imminent volume uptick post production ramp-up at new mines, despite stagnant prices.

On valuation front, we believe the stock is trading at the lowest end of its 8-year EV/EBITDA band. We expect GMDC to surpass the Rs 5,000 crore (3 percent CAGR) EBITDA barrier by FY21.

Brokerage: Arihant Capital Markets

Oberoi Realty: Buy | Target: Rs 634 | Return: 31%

Oberoi Realty (ORL) is a Mumbai focussed premium real estate developer, primarily catering to the ultra-luxury and luxury segment.

With city-centric operations well spread out across the Mumbai region, ORL has a project portfolio of around 34 million square feet (msf) spread across 24 projects. With a strong brand name and a dominant position in each of its micro market, ORL has a strong visibility of future cash flows.

With lowest debt/equity ratio in the industry (0.2x) and robust execution, ORL can achieve substantial value creation in the medium term. We remain positive on ORL’s future prospects and initiate coverage with a buy rating and a target price of Rs 634.

Brokerage: JM Financial

Ashoka Buildcon: Buy | Target: Rs 170 | Return: 19%

With a life time high orderbook, we believe ABL is at an inflection point, which can trigger at least 20 percent plus revenue CAGR in FY19-21E (versus guidance of 40 percent).

Despite assuming slow execution (20 percent sales growth) and 11 percent fall in NHAI ordering (versus FY18) in FY20-21, we find ABL delivering 12 percent CAGR in earnings (FY18-21) while stock trades at P/E of 6x FY21 (core EPC business).

Our bull case, which factors 40 percent sales growth as per guidance, implies 17 percent EPS CAGR in FY18-21. We value the stock at EV / EBITDA of 6x (50 percent discount to L&T) for the EPC business and NPV value of BOT (implied P/BV of 1.1x) for a target price of Rs 170. We initiate with a buy.

Brokerage: Elara Capital

Container Corporation: Buy | Target: Rs 590 | Return: 18%

We initiate on CONCOR with a buy rating and a target price of Rs 590 based on 23x FY21E P/E (at par with past five-year average one-year forward P/E).

It posted a revenue CAGR of 3 percent over FY15-18, with muted return ratios, due to an increase in rail haulage charges by Railways Ministry in FY15. Although risk remains, diversification to multi-modal logistics player would help add new revenue streams.

With market leadership position in container rail operations, CONCOR would be a key beneficiary of the rise in rail containerization post DFC.

Owing to huge scalability potential, the stock currently trades at premium valuation with 67 percent of value attributable to long-term growth (earnings beyond FY21). We expect a revenue CAGR of 14 percent and an earnings CAGR of 14 percent over FY18-21E.

Future Supply Chain Solutions: Buy | Target: Rs 743 | Return: 17%

We initiate on Future Supply Chain Solutions with a buy rating and a target price of Rs 743. Our TP is based on 23x FY21E P/E and currently we have not factored in any value from the Vulcan subsidiary.

We expect a revenue CAGR of 37 percent over FY18-21E and an earnings CAGR of 24 percent. Superior EBITDA margin led by a sturdy business mix act as key differentiator.

Despite a moderate drop in EBITDA margin in the near term due to a recent foray in the foods business, we expect an operating profit CAGR of 34 percent over FY18-21E. At the CMP, the stock

trades at 19x FY21E P/E which is below the lower end of the one year forward P/E band since IPO in December 2017.

VRL Logistics: Buy | Target: Rs 314 | Return: 15%

We initiate on VRL Logistics with a Buy rating and a TP of INR 314 based on 23x FY21E P/E. Our TP implies 22% potential upside. We expect a revenue CAGR of 11 percent over FY18-21, with increasing EBITDA margin.

Current benign diesel prices (down 11 percent since peak in October 2018) augur well. Despite expected improvement in EBITDA margin, depreciation on capex and interest expenses on incremental debt would keep earnings CAGR at 10 percent over FY18-21E. At the current price, the stock is trading at 18.8x FY21E P/E.

Brokerage: Geojit

Mold-Tek Packaging: Buy | Target: Rs 312 | Return: 12%

Mold-Tek Packaging (MTEP), one of the leading manufacturers and suppliers of high quality airtight and pilfer proof containers/pails in India for Paints, Lubricants, Food and FMCG.

MTEP’s revenue grew by 12 percent CAGR whereas PAT grew by whopping 41 percent CAGR over FY13-FY18. EBITDA margin expanded by 830bps to 18.7 percent over FY13-18. Strong profitability growth was led by margin expansion on account of increasing share of in-mold volumes.

Development of molds and labels in-house and use of robots in production process has significantly helped in reducing cost and maintaining competitive advantage.

Incremental volumes owing to capacity expansion, higher contribution from in-mold sales and rising share of FMCG in revenue mix will be margin accretive. We factor earnings to grow by 22 percent CAGR over FY19E-FY21E. We value at P/E of 17x on FY21E with a target price of Rs 312 and initiates coverage with buy rating.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
First Published on Mar 14, 2019 02:01 pm

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